Since 1967, when the United States Supreme Court ruled in National Bellas Hess v. Illinois and reaffirmed in 1992 with the Quill v. North Dakota decision, the prospect of taxing sales of products purchased from vendors without common nexus with the state of delivery and use (use taxes), has been substantially restricted. In 1977 the Supreme Court used Complete Auto Transit. Inc v. Brady to establish a four part test to determine if the conduct of an activity could survive a challenge under the Commerce Clause of the United States Constitution. This established a definition to the term “nexus” that had been used in numerous court cases since the 1940's and is the basis for the current concerns that tax authorities have about declining revenues because of increased extra-nexus transactions, especially related to the increased use on the Internet to conduct sales transactions.
Since the above two identified cases were decided, several methods of collecting use tax have been tried, wherein a use tax is a complement to a sales tax in that a use tax is a tax based upon where a good or service (these terms denoted herein by the common term “product”) is consumed rather than from whom or where it is purchased. However, none of these methods have met with wide spread acceptance from tax authorities or merchants. Accordingly, some (U.S.) states have begun to put lines on their individual income tax forms requiring voluntary disclosure of purchases subject to use taxes and the subsequent computation and remittance of the taxes due.
In the case of the (U.S.) states and other tax authorities, the impact of court restrictions on use taxes of network (e.g., Internet) purchases has become more severe as purchasing from merchants in diverse geographical locations has become much easier with the growth of commerce on the Internet. However, with advancements in technology, the guidelines that the United States Supreme Court addressed. In particular, increased sophistication and availability of software applications and databases has made meeting the guidelines to accurately calculate, collect and remit/report their sales activities to a large number of tax authorities much easier. Accordingly, it would be desirable to provide a method and system for determining taxes on purchases regardless of whether the purchases are performed substantially via a communications network such as the Internet, or otherwise, and wherein the method and system satisfies the U.S. Supreme Court guidelines.